The next economic report to disappoint: Existing home sales

January's existing home sales are scheduled to be reported at 10 a.m. EST, and are expected to show a decline of 3.5 percent to 4.7 million, and nobody will be surprised if it is worse. The report follows this week's housing starts, which plunged 16 percent, a victim of bad winter weather.

"I think people are kind of looking past it at least in terms of housing, and thinking it's the weather," said Barry Knapp, head of equity portfolio strategy at Barclays.

Scott Eells | Bloomberg | Getty Images

Traders on the floor of the New York Stock Exchange.

Stocks rallied Thursday and bonds fell, as investors ignored a weak report from the Philadelphia Fed, which showed a plunge in new orders and a surprise contraction in manufacturing activity.

"The stuff coming out of the manufacturing sector is just as confusing as the stuff coming out [of] the construction and housing sector," Knapp said.

Traders said some of the buying activity was related to Friday's options expiration. The Dow jumped 92 points to 16,133 and the S&P 500 was up 11 at 1,839.

"I think it's a very choppy picture in the very short term but housing is basically in good, solid shape from an intermediate point of view," said Dick Hoey, BNY Mellon's chief economist. He said it's a positive that the housing market has cleared out a lot of inventory.

"When the rates spiked up, you kind of calmed down that intensity of strength and now the rates have come off a little bit. If you think about the spring season, going into summer, you've got fairly moderate mortgage rates and assuming the economy starts to come back in the spring, you'll start to get the psychology of 'gee, this is a chance to get reasonable mortgage rates.' "